Tag Archives: Interest Rates

Post navigation

Governor of the Bank of England Mark Carney has ruled out an early increase in borrowing costs, vowing that this week’s faster than expected fall in unemployment will not lead to an automatic interest rate rise that might harm the recovery. Softening his flagship forward guidance policy of linking an interest rate rise to a fall in unemployment rate to 7%, Carney denied that it has caused a headache for the Bank – saying that “if our forecast is going to be wrong, it’s better for it to be wrong in that direction”. He has also announced that when the Bank does decide to raise interest rates for the first time since the financial crisis, that changes will be gradual. Some City analysts are now expecting Carney to announce that he will lower the threshold at which the Bank would consider raising interest rates to an unemployment level of 6.5%, although the Governor has said that the Bank’s monetary committee will consider all aspects of the labour market and not just the unemployment rate (Telegraph Business p.1, Guardian FP, FT FP, Independent p.4)

Personal Finance

Launching a major counter-offensive against Labour’s accusations of a cost-of-living crisis, Department for Business Minister Matthew Hancock writes in the Times today that there is “stark” evidence that after-tax pay grew by more than prices for all but the best-paid 10%. The Conservatives insist that the recovery is reaching ordinary families and that standards of living are on the rise, as the latest ONS Annual Survey of Hours and Earnings showed that working families’ pay rose a third faster than inflation in the year to April 2013. The data also shows that growth in take-home pay is strongest in the North and Midlands, and weakest in London and the South, rivalling Labour’s assertions that economic growth is unevenly spread and enhancing the north-south divide (Times FP and leading article, Telegraph FP, Mail p.2).

Property

The number of first-time buyers stepping onto the property ladder has surged to its highest level since 2007, as “schemes like Help to Buy provide vital support” according to LSL property Services. The volume of first-time buyer deals in December 2013 was up 30% from a year previously. But while the average deposit for a first-time buyer has fallen by 3.6% since December 2012, their mortgages are getting bigger – jumping by 11.4% in a year (Times p.44).

Recruitment

At the World Economic Forum in Davos today, Cameron will claim that fast-recovering Britain offers an opportunity to win back jobs lost overseas, saying “there is a chance for Britain to become the Re-shore Nation”. He will announce that the Coalition’s low business taxes plus the prospect of cheap energy from shale gas are set to decisively reverse the off-shoring trend. He will report that many firms are already looking to relocate call centres as well as high-skilled manufacturing and technology plants back to the UK after years of outsourcing production and services to India and the Far East. 1,500 manufacturing jobs have already been brought back to the UK since 2011, with companies such as food manufacturer Symington’s, model train firm Hornby, and fashion brand Jaeger relocating back to Britain. More than 1 in 10 SMEs have brought back production to Britain in the past year, more than double the proportion sending it in the opposite direction overseas (FT p.4, Express p.4, Mail p.2).

Unemployment has dropped by the biggest amount in 17 years as the British economy finally bounces back after the financial crisis, reports the Times (Kathryn Hopkins, p.2), Telegraph (Alan Tovey, B1), and City AM (Michael Bird, p.2). ONS figures revealed yesterday that the unemployment rates had fallen from 7.4 per cent to 7.1 per cent – just a whisker above the Bank of England’s 7 per cent threshold at which it will consider raising interest rates. But the bad news is that 7m workers are now living in poverty due to low wages, reports the Mirror (p.2). Average earnings were up by just 0.9% – less than half the 2% rate of inflation.

Personal Finance

The average cost of bringing up a child to the age of 21 in the South East is almost a quarter of a million pounds, according to a new report by LV= insurers. The Cost of a Child Report found that a couple need to have an income of almost £1m over 21 years to fund an average childhood. (Daily Mail, p.5) Rising inflation has meant that overall cost has increased by 62 per cent in a decade, and the costs associated with the first year of a child’s life has seen a 50 per cent rise since 2003. (Daily Express, p.28)

Recruitment

Employment minister Esther McVey said that the young jobless should stop expecting to land dream jobs and instead work their way up by working in places like Costa Coffee. (Sun, p.6, Mail, p.8) McVey said that those under 25s without jobs should start in “lowly” entry level roles and graft their way to the top. Critics accused the minister of sounding like Norman Tebbit, the Tory who told the jobless to “get on your bike and look for work” when he was employment minister in 1981 .

Peter Whitehead in the FT (Executive Appointments, p.2) reports that those in financial services and accountancy scored low in terms of professional fulfilment compared to other sectors. Quoting research from Randstad, the article describes that the profile of the most fulfilled worker in finance is a well-educated and confident woman earning £45,941. The article invites readers to test their levels of fulfilment in a quick online test: http://www.randstad.co.uk/financial-and-professional-fulfilment-quiz/

The Paris-based Organisation for Economic Co-operation and Development (or OECD) has revised down its expectations for global growth – to 2.7% this year, from 3.1% expected back in May. OECD economists cite the trouble in the USA over levels of government debt and the resulting shutdown, alongside the United States federal reserve and the effects of slowing down their digital money printing tactics. In the Financial Times, Martin Wolf discusses the limits on global growth and, perhaps controversially, puts the blame on an excess of savings across the world. (FT p.15)

However, for the UK, the OECD report was flowing with more optimism – for the time-being at least – as the British economy is set to grow by 1.4% in 2013, and by an expected 2.4% over the course of next year. (FT p.3)

Personal Finance

In today’s Independent, the front page blares the warning of “Britain’s next debt time-bomb”. As if the current struggles with government overspending weren’t enough, it seems that a new threat is developing from levels of personal debt. According to the Centre for Social Justice, 3.9 million British families lack savings to cover even one month’s mortgage or rent. In total, households owe the equivalent of 94% of the UK’s economic output, according to the CSJ. Meanwhile Andrew Grice, political editor at the Indie, says some ministers are concerned that excessively low interest rates are not encouraging people to pay down debt as fast as in some other countries.
(The Independent, p.1, p.14)

Property

Yorkshire Building Society is today announcing 36 new mortgage offers, adding to the spate of new 95% mortgages coming onto the market. According to the Daily Mail (page 10) , the number of 95% mortagges on the market has now reached over 100, up from 64 yesterday and 42 last month. But – there is still some way to go until lost ground is made up – the number of these 95% mortgages stood at 986 back in August 2007.

Recruitment

This morning’s City A.M. leads with the headline “Too many grads not enough jobs” –covering statistics released yesterday from the ONS on graduates in the labour market. Almost half of the UK’s recent graduates now in employment are not making full use of their skills, with 47% working in “non-graduate jobs”, where their work does not require a degree. Despite recent economic growth the graduate unemployment rate has also barely fallen since 2009, now standing at 8.82% compared to 8.99% four years ago in the brimstone of recession. In the Daily Telegraph, Andrew Hunter of jobs search engine Adzuna puts this in the context of wider improvements in the job market – with just 1.9 jobseekers now competing for each vacancy, compared to 2.3 at this point last year, though he adds, “But for those who are fresh out of university, the prospects of finding that first job remain gloomy”.

On a less gloomy note for graduates, a degree might still seem like a good idea compared to other routes – those with a degree still have much better chances than those without. On the other side of the fence, those with just GCSE qualifications have to wait until the age of 32 before their wages “level out at £19,000”. (The Guardian, p.7)

Martin Weale, a member of the rate-setting Monetary Policy Committee, said that interest rates could remain at record lows even after unemployment falls below the 7% threshold set by the Bank of England. At a speech in London, Weale said that “a rise is not automatic” when the rate hits the 7% threshold, something the bank expects could happen towards the end of next year rather than in 2016. “It is perfectly possible that, as time moves on, the right thing to do will be to keep Bank Rate at 0.5pc even when unemployment has dropped below our 7pc threshold,” he said. (Daily Mail, p.96)

The Telegraph (p.39) reports that in the same speech, Weale also warned that the Sterling is too strong and must weaken if Britain is to secure a balanced recovery. While the pound’s recent strength had helped to ease the cost of living, he remained uncomfortable with its current value. The UK’s current account deficit is on course to hit a 25-year high next year, the worst of any major industrial country. This is made worse by the strong pound, making British exports unattractive and fuelling imports of cheaper goods from abroad.

Property

Knight Frank research predicts that house prices are set to soar by 24% over the next five years, pushing the price of an average three-bedroom semi to £185,833. In London, average prices will jump by £76 each day next year. Brian Murphy, head of lending at the Mortgage Advice Bureau, said: “The arrival of Help to Buy has been an integral part of improving the outlook for the wider property market.” (Express, Sarah O’Grady, p.4)

Britain has become a nation of downsizers, with almost half of homeowners planning to sell their property in the next three years to move into somewhere smaller, saving £100,000 on average. The research by Lloyds Bank found that more than a third of potential downsizers wanted to free up cash to support their retirement plans, while nearly half wanted to reduce their bills and outgoings. (Times, Kathryn Hopkins, p.8)

Personal Finance

The number of people switching bank accounts to Nationwide Building Society has risen by almost 50 per cent to more than 400 per day since the new rules on switching bank accounts were introduced. The increase in switchers to Nationwide was much more dramatic than across the sector as a whole, where reports of 11 per cent increases in switching were reported during the first few weeks of the scheme. (Times Business, p.51, Guardian, p.43, Daily Mail, p.96) The news signals the company’s ‘aggressive push into the current account market’ (FT, p.18) as a means of attracting new customers and offering them other products, and was announced together with their half-year financial results.

Recruitment

Youth unemployment poses a major threat to the global economy and will led to more crime and social unrest if it is not tackled, according to the World Economic Forum. The problem is particularly acute in the Eurozone where one-in-four under 25s who want a job cannot find work – in Spain and Greece, this proportion rises to half. SD Shibulal, chief executive of Infosys, who contributed to the report, said: “There is a growing consensus on the fact that unless we address chronic joblessness we will see an escalation in social unrest.” ‘The Outlook On the Global Agenda’ report was published on Friday. (Daily Mail, p.97)

Michael Gove has spoken out claiming campaigners against the planning reforms are stopping children growing tall by forcing them to live in smaller homes with shared bedrooms. He also added that keeping the planning restrictions would have stunted educational growth for many. Telegraph, p1

The Times suggests that all the best people want to display masonry in their homes. Actors like Oliver Thornton and One Direction star Harry Styles have both been attracted by exposed brick. Matt Stanway, sales manager at Urban Spaces believes properties with exposed brick have the edge in terms of desirability. The more loft features – concrete ceilings wooden flooring, steel factory windows – the better. Times B&M, p5

Number of first time buyers has swelled according LSL Property Services. There were 26,100 people buying homes for the first time in July, up 8,000 through the year. Information from Connells Survey and Valuation added to LSL’s figures, suggesting that August had seen 40% more first time buyers than the same month the previous year. City AM, p7; Times, p47; Guardian, p13; FT, p3

Investors, buoyed by the apparent momentum of the economy, expect the first rise in interest rates to come almost two years earlier than the Bank of England indicated last week. Market interest rate expectations suggest the Bank’s Monetary Policy Committee will disregard its new forward guidance and raise the rate in the final months of 2014 or beginning of 2015. Financial Times, p1

New rules to limit pay in the financial sector are being unnecessarily rushed according to the British Bankers’ Association. The lobby group recommends the rules be postponed until 2015. In its submission to the European Banking Authority, the BBA said the EU’s decision to equate earnings with those considered to be a material risk taker meant many relatively junior staff faced having their pay curbed. Telegraph, B1

The European Commission in expected to publish details of new legislation which would ban mobile roaming charges. From 2014, customers would be able to keep costs down by selecting another provider for calls, texts and data while travelling if their own network charges extra for service abroad. Guardian, p31

Britain’s economy is outpacing all its main competitors including America, according to combined data from Markit and JP Morgan. Britain’s economy is growing at an annualised rate of 2.4%, compared to 1.7% annual growth in the USA and an on-going recession in the Eurozone. Many economists are now upgrading their forecasts for this year and next. “This recovery is broad, and the broader it is, the more sustainable it is”, says Rob Dobson, senior economist at Markit. (Sunday Times p.2)

Personal Finance / Property

With official interest rates at record lows, and now set to remain so until an improving economy brings the unemployment below 7%, savers are bracing themselves for what could be a three more years of a 0.5% base rate. If interest rates did rise in 2016, in total that would mean a seven year wait for higher returns. Sunday Times Money has a full feature on what impact below-inflation returns could mean for savers, focusing on the move into property investments, and the rise of Buy-to-Let borrowing to leverage these deals. Buy-to-Let house purchases are expected to hit 85,000 this year and 100,000 in 2014, fuelled by strong rental yields, currently averaging 5.3% according to the LSL Buy-to-Let Index.

David Whittaker of Mortgages for Business said, “In the last couple of days we have seen a surge in calls for savers looking for advice on getting into the buy-to-let market. Clients want a better return ion savings than they would get by sticking their savings in the bank.” (Sunday Times Money p.1)

Recruitment

Unemployment could fall to a new low in this week’s jobless figures. According to IHS Global Insight the official figures on Wednesday will show a fall in unemployment of 38,000 to a 25 month low of 2.48 million. They also expect a rise in employment levels – predicting 52,000 more people in work to take the total number of people employed in the UK to 29.8 million. (Sunday Express Financial p.1) Tara Ricks, managing director of Randstad Financial and Professional, says “the jobs market is humming” and that this will help “stoke the fires of the economy”. In his column, the Express’s Geoff Ho is more cautiously optimistic saying we should still “keep the champagne on ice” for the time being, highlighting youth unemployment, which is still stubbornly high.

Sir Mervyn King lambasted top bankers and politicians yesterday for trying to interfere with efforts to make UK banks safer. The governor complained that bankers left meetings with the new Prudential Regulation Authority and out tremendous pressure on the politicians to water down the rules. FT, p2; City AM, p1

Personal Finance

In his final public appearance as Bank of England governor Sir Mervyn King warned that many homeowners in their thirties and forties have unsustainably large mortgages and will struggle if interest rates return to 3 or 4%. He urged his successor not to raise rates until the issue is under greater control. The Times, p1; City AM, p4

Recruitment

The Chancellor is to announce the first steps towards performance related pay across the public sector as he scraps automatic salary rises, linked with time served. Setting out plans to cut public spending by £11.5bn, the Chancellor will impose further measures on wages of six million workers by abolishing incremental pay. Times, p4

Despite the coalition promising to promote female talent, the Chancellor has not appointed a single woman to a senior public sector post. Cabinet Office minister Francis Maude called for more women to be appointed as the business department, the Ministry of Defence and the treasury failed to meet its targets of 50% female appointments. Telegraph, p12

Property

Experian reports that there has been a 19.1% rise in £500,000 + properties in the first quarter of 2013 compared to the same period in 2012.